Urban Land Magazine » Lew Sichelmanhttp://urbanland.uli.org
Tue, 31 Mar 2015 17:25:50 +0000en-UShourly1http://wordpress.org/?v=4.1.1Forecast: Commercial Property Transactions on Course to Reach a Ten-Year High by 2016http://urbanland.uli.org/capital-markets/forecast-commercial-property-transactions-course-reach-ten-year-high-2016/
http://urbanland.uli.org/capital-markets/forecast-commercial-property-transactions-course-reach-ten-year-high-2016/#commentsWed, 02 Apr 2014 19:35:57 +0000http://urbanland.uli.org/?p=25161A new survey by the Urban Land Institute and EY forecasts that activity in the commercial sector will soon reach levels not seen since 2006. The housing sector is also expected to continue its rebound, albeit at a somewhat slower pace than previously predicted.

]]>A new survey by the Urban Land Institute and EY forecasts that activity in the commercial sector will soon reach levels not seen since 2006. The housing sector is also expected to continue its rebound, albeit at a somewhat slower pace than previously predicted.

The latest survey of 39 of the industry’s leading economists and analysts points “to a quirk in history” in which returns are expected to be even across all property types, said John Southard, managing director of CBRE Economic Advisors, during a webinar introducing the semiannual “ULI/EY Real Estate Consensus Forecast.”

No segment of the business is at its peak, said Southard, but none is at its trough either.

“We are in a good place in terms of real estate fundamentals,” said Bill Maher, director of North American investment strategy for LaSalle Investment Management.

The consensus forecast, which is based on the median of participants’ prognoses, is more optimistic than the survey six months earlier. “We should be hitting a lot of milestones,” said Howard Roth, global real estate leader at EY (formerly Ernst & Young).

The survey was undertaken during a three-week period from mid-February to mid-March. The next release is planned for October.

The three-year outlook predicts that commercial property transaction volume will hit $430 billion in 2016, second only to the peak reached in 2007, when $571 billion in sales were recorded. The forecast represents a 20 percent increase from the previous ULI/EY consensus forecast, released in October, when the median estimate of all participants for 2015 was $350 billion, said Anita Kramer, vice president of the ULI Center for Capital Markets and Real Estate.

In what Kramer called “another long-awaited milestone,” commercial property prices are expected to moderate over the next three years, with increases falling to 5.7 percent in 2015 and 2016.

The issuance of commercial mortgage–backed securities (CMBS), a key source of funding for income-producing properties, also is expected to rebound, but issuances will still be well short of the record $229 billion notched in 2007. The forecast is for a steady rise of $20 billion annually, to $140 billion in 2016.

Maher of LaSalle Investment Management said he was surprised the forecasts for volumes were not higher. Higher prices “will bring out the sellers,” he ventured. “A lot of people need to liquidate. I think the market will clear.”

But noting that $430 million in sales is equivalent to 10 percent of the nation’s total commercial real estate stock, seminar participant Doug Poutasse, executive vice president of Bentall Kennedy, said, “That’s a fairly high turnover rate.”

The forecasters also expect the overall economy to continue expanding at a rate equal to the 20-year average. Growth in real gross domestic product (GDP) is expected to hit 2.8 percent this year, then reach 3 percent in each of the two subsequent years. The unemployment rate will continue to slide, slipping to the 20-year average of 6 percent in 2015 and then 5.8 percent in 2016, they predict. And employment will grow by more than 7.5 million jobs over those years.

The participants expect inflation to bump up to 1.9 percent this year, 2.2 percent in 2015, and 2.5 percent in 2015, only slightly higher than the 20-year average of 2.4 percent. The ten-year Treasury rate, a key measure for real estate values, is expected to move up as well, Roth noted, from 3.4 percent this year to 4.4 percent in 2016, just below the 4.5 percent 20-year average.

Although Treasury rates will increase borrowing costs, survey respondents do not expect the increase to have a substantial impact on real estate capitalization rates for institutional-quality investments. The National Council of Real Estate Investment Fiduciaries (NCREIF) capitalization rate is expected to remain at 5.7 percent this year, then rise to 5.9 percent in 2015 and 6.2 percent in 2016.

The latest outlook by property type follows:

Housing. Single-family starts are expected to step up annually, from 618,000 this year to 900,000 in 2016—more than double the low point of 430,600 in 2011. But that is still far below the 20-year average of nearly 1.08 million. Solid gains above the long-term average also are expected for home prices, but they will moderate after a 6 percent jump this year to 4.4 percent in 2015 and 4 percent in 2016.

Apartments. End-of-year vacancy rates are expected to rise slightly to 5 percent this year, 5.2 percent in 2015, and 5.3 percent in 2016. Gains in apartment rents, which slowed in 2013 after two years of significant growth, are expected to increase slightly this year to 2.7 percent, then moderate to 2.3 percent in 2015 and 2.2 percent in 2016.

Office. Vacancy rates will continue to slip, following a trend that began in 2011. The participants look for vacancy rates to dip to 14.3 percent this year, 13.7 percent in 2015, and 13.1 percent by the end of 2016. They also foresee healthy and continued growth in office rental rates, with increases of 3 percent this year, 3.9 percent in 2015, and 3.6 percent in 2016.

Industrial/warehouse. Activity in this sector is expected to continue to slow, but at a slower pace. Vacancy rates are projected to decline from 11.3 percent in 2013 to 10.7 percent this year, 10.3 percent in 2015, and 10.1 percent by the end of 2016.

Retail. Availability rates fell in 2013, and the consensus forecast anticipates modest improvements over the next three years. Availability rates are expected to decline to 11.5 percent this year, 11.1 percent in 2015, and 10.8 percent in 2016. Survey respondents also foresee a turnaround on rental rates, with increases of 1.9 percent this year, 2.5 percent in 2015, and 3 percent in 2016. Retail is the only sector expected to run above the long-term average, Kramer pointed out.

Hotel. Occupancy rates are expected to continue their steady improvement, with the 2016 projection surpassing the pre-recession peak in 2006. The projection is for occupancy rates to reach 63.1 percent this year, 63.6 percent in 2015, and 63.8 percent in 2016. The strong growth in hotel revenue per available room of the past four years also is expected to continue, remaining above the long-term average annual growth rate but decelerating as the forecast lengthens.

]]>http://urbanland.uli.org/capital-markets/forecast-commercial-property-transactions-course-reach-ten-year-high-2016/feed/0Index Finds U.S. Government-Backed Lending Increasingly Laxhttp://urbanland.uli.org/news/new-index-finds-u-s-lending-increasingly-lax/
http://urbanland.uli.org/news/new-index-finds-u-s-lending-increasingly-lax/#commentsWed, 18 Dec 2013 15:59:13 +0000http://urbanland.uli.org/?p=24321Nearly one out of every four loans guaranteed by the U.S. Federal Housing Administration (FHA) would likely end in default over the next five years if another recession were to occur, according to a new measure of loan safety.

]]>Nearly one out of every four loans guaranteed by the U.S. Federal Housing Administration (FHA) would likely end in default over the next five years if another recession were to occur, according to a new measure of loan safety.

The new National Mortgage Risk Index (NMRI) for October indicates that 10.9 percent of mortgages backed by the federal government would go into default over the next five years if an economic crisis similar to 2008 were to occur. But that represents 23.2 percent of all FHA loans compared to just 5.6 percent of loans backed by mortgage giants Fannie Mae and Freddie Mac.

Pinto, who has been a critic of the FHA, Fannie Mae, and Freddie Mac, said the NMRI is “a transparent and objective measure” of mortgage risk, home price risk, and the capital adequacy needed to evaluate and manage housing risk.

“The numbers aren’t conservative or liberal,” Pinto said. “How people use the numbers can be done through the lens of political orientation, but not the number themselves.”

The main index reportedly covers 85 percent of all new mortgages, while 100 percent of government-insured mortgages are covered.

During a media briefing, Pinto and Oliner, who are codirectors of the ICHR, said the index will help investors, lenders, policy makers, and even consumers assess and mitigate their mortgage and housing risks.

The recent financial crisis stemmed largely from the failure to understand the buildup of housing risk, they said, but better information can help dampen the boom/bust cycle and make corrections less damaging.

The authors said mortgages should be evaluated in the way cars are tested for their crashworthiness. They should be put to a stress test of a substantial drop in prices, Pinto said.

The index uses 1990-vintage loans as a benchmark––“a time when a preponderance of loans were considered safe”––as well as 2006–2007 vintages when lending standards were considered lax.

Measured against those standards, the index shows that fewer than half of all loans originated between August and October of 2013 can be considered low risk, which is defined as a default rate of less than 6 percent. More than 30 percent are high risk, defined as a default rate of 12 percent or more, and roughly 22 percent are medium risk.

FHA’s share of lower-risk mortgages, moreover, is less than 1 percent. And Fannie Mae’s share of higher-risk loans is growing, Pinto said. “Fannie Mae is adopting a higher-risk profile and taking business away from Freddie,” he said. “It is willing to accept riskier loans.”

The authors said that while the government has attempted to curb perceived risk factors, common-sense credit standards have yet to be adopted. And without such measures, they argued, the U.S. housing market will remain vulnerable to the gradual abandonment of sound underwriting standards.

The center also plans to introduce news indices of collateral risk and capital adequacy, and some two dozen international members are working on similar risk profiles for their own countries.

Working with Pinto and Oliner on the project are Morris Davis, academic director of the Graaskamp Center for Real Estate at the University of Wisconsin and a visiting AEI scholar, and economist Michael Molesky, a leading expert on mortgage default risk and insurance regulation.

]]>http://urbanland.uli.org/news/new-index-finds-u-s-lending-increasingly-lax/feed/0Is the Multifamily Boom Spreading to the Suburbs?http://urbanland.uli.org/fall-meeting/is-the-multifamily-boom-spreading-to-the-suburbs/
http://urbanland.uli.org/fall-meeting/is-the-multifamily-boom-spreading-to-the-suburbs/#commentsWed, 13 Nov 2013 22:15:08 +0000http://urbanland.uli.org/?p=23832While multifamily development in the urban core has boomed, the prospects for suburban development are more mixed, said experts at ULI’s annual meeting in Chicago.

]]>While multifamily development in the urban core has boomed, the prospects for suburban development are more mixed, said experts at ULI’s annual meeting in Chicago.

W. Dean Henry of Legacy Partners Residential isn’t a believer in suburban residential yet. Henry, who got his start building 20,000 mostly suburban units in Southern California has done mostly infill projects over the last decade, is one of those guys who follows the money.

“If we can finance it, we’re going to build it,” said Henry, adding that it “is a lot more difficult to get deals done” now than in the past. “Money is a lot less patient,” he said.

But the Bozutto Group, the Maryland apartment developer which has thrived on projects in the Baltimore-Washington corridor, has done it all over the last decade, both infill and suburban. The company still considers itself a suburban developer, said Toby Bozzuto Jr., who now runs the firm his father built over 30 years.

“We’re suburban,” Bozzuto said. “But we like to be anchored by walkable urban-like projects. We’re not ever going back to garden, walk-up projects. We like tenant-based, ground floor retail.”

Active in 17 mostly Midwestern markets, Jonathan Holtzman of Village Green said his firm likes to think of itself as a suburban developer. Holtzman pointed out that infill was once suburban. Detroit is working best for the company these days, with 3-5 percent rent growth and 95-100 percent occupancy.

But wherever Village Green is active today, it is about getting tenants to as close to work as possible so they rarely have to get in their cars. Tenants these days measure in time, not miles, Holtzman said.

Bozutto said his company tries to bring in its rent at about 15% over the market, and it uses creative design to reach that price point. Moreover, the firm does not distinguish urban or suburban by design. “A lot of the existing market has no sex appeal, no sizzle to it,” he said.

Holtzman also builds to command a premium. But even then, he noted, a 50 percent turnover rate is not uncommon. “It doesn’t really matter what we do” to obtain and hold tenants.

Henry, too, is building more urban-like projects in the suburbs. “The kids who are renting today are relatively well-off and want to be near work,” he said

But it’s not just young adults who are today’s renters. It’s also former owners who are downsizing, divorcees and 35 and older professionals. When these people go home, said Bozutto, they want to be home. Lobbies should be more like hotel lobbies, places where residents can stop and have coffee or a drink.

Village Green’s Holtzman warned, though, that suburban renters are much more price sensitive than their urban compatriots, so it takes more than just pools and exercise rooms to keep them happy.

Transit is a must, the Midwest builder said, suggesting that developers pay closer attention to the price of gasoline when deciding where and what to build. “As soon as prices go down,” he said, “tenants go further out.”

Bozzuto also is placing a lot of emphasis on transit. If not that, he said, then certainly near retail centers.

Henry said it is difficult to differentiate these days between suburban and urban. There’s a need for both, he said, adding that “we’re doing a lot of urban because that what the capital is driving.”

]]>http://urbanland.uli.org/fall-meeting/is-the-multifamily-boom-spreading-to-the-suburbs/feed/0What Would Steve Jobs Do? Innovation in Residentialhttp://urbanland.uli.org/news/what-would-steve-jobs-do-innovation-in-residential/
http://urbanland.uli.org/news/what-would-steve-jobs-do-innovation-in-residential/#commentsWed, 13 Nov 2013 21:26:50 +0000http://urbanland.uli.org/?p=23834At a panel at ULI Fall Meeting in Chicago, panelists and audience participatns were asked what innovations Apple Computer’s founder and CEO would have undertaken had he been a residential developer.

Two years after his death, the name Steve Jobs still draws a crowd. At a panel at the 2013 ULI Fall Meeting in Chicago, panelists and audience participants were asked what innovations Apple Computer’s founder and CEO would have undertaken had he been a residential developer.

“There has been very little true innovation over the last 50 years” in how homes are designed and built, said moderator Beth Callender of Greenhaus, a marketing and branding ad agency in San Diego. She encouraged the audience to shout out what changes Jobs might have championed, having revolutionized the music industry with the iPod, computing with the iPad, and smartphones with the iPhone.

“Disposable houses” were mentioned, while another audience member talked about taking building regulations out of the hands of local politicians and allowing them to be written on a more coherent regional or statewide basis.

“Our industry has largely been stuck” in the middle of the bell curve, said Brett Herrington, president of Kukui’ula Development. His company is building a 1,000-acre master-planned community on the southern coast of Kauai in Hawaii. “The biggest thing that’s happened is that housing has gotten bigger at about the same inflation-adjusted price per square foot.”

Herrington said Jobs might tinker with how space is used, and design a product that salespeople would be proud to show and demonstrate for would-be buyers. “There’s a huge opportunity for the brightest minds in the business to come together and dare each other to do something different,” he said.

Builder-developer Randall Lewis agreed, maintaining that the housing sector “doesn’t do a good job building brand loyalty.” Jobs knew his customers better than they knew themselves, Lewis said, suggesting that, as a builder, Jobs would “enhance the customer experience.”

Houses “should be more than just shelter,” said Lewis, who believes Jobs would have made his houses smarter than the competition’s. He would have offered “more great-looking houses at more price points” to attract the greatest number of buyers.

Morad Fareed, cofounder of Delos Living, a New York–based real estate development company that is pioneering a new standard for healthy buildings, suggested a “natural merger” of housing and wellness. Builders should integrate medicine into their products to help prevent disease, improve energy levels, and lengthen occupants’ life spans, he said.

“Why stop at building just houses?” asked Fareed, whose firm has married science and architecture, reshaping how homes are built to place well-being and personal sustainability at the heart of design and construction decisions.

Herrington, who spent some years at Disney’s award-winning Celebration development in Orlando, said Jobs would have insisted on more intelligent design and more efficient use of space—walls that can pivot out of the way, rooms that can be moved based on the season.

“It’s not about putting more gizmos in houses,” he said, maintaining that “by and large, residential architecture is very sad.” Jobs’s houses, he said, “wouldn’t look like tacky little places. It would be about groupings, living spaces in the context of the way people live. There wouldn’t be rooms; it would be flexible space, private and shared. ”

When asked what innovations seemed inevitable, Lewis suggested that energy would become more important. Energy is “not going to cost less,” he said. “It’s no longer about what we are doing to our climate; it’s about what our climate is doing to us.”

Lewis sees the end of telephone landlines, and possibly even the demise of the television set. TV sets “are no longer the center of entertainment” they used to be, he said, suggesting that even flat-screen sets “are on the edge of completely disappearing” because people are relying more and more on laptops and handheld devices.

Herrington said what was once old could become new again—smaller communities with more corelike areas, reuniting housing and employment. “Whether it’s some great revelation or just natural forces,” he offered, “builders will find more ways to bring things back together again the way they used to be.”

]]>http://urbanland.uli.org/news/what-would-steve-jobs-do-innovation-in-residential/feed/10The ‘New’ Industrial: E-commerce Fulfillment Centershttp://urbanland.uli.org/news/the-new-industrial-e-commerce-fullfillment-centers/
http://urbanland.uli.org/news/the-new-industrial-e-commerce-fullfillment-centers/#commentsMon, 11 Nov 2013 21:11:35 +0000http://urbanland.uli.org/?p=23719E-commerce has been the fastest-growing segment of the retail market for the last four years and can be expected to be a large share of the market for the next 15 to 20 years. Fulfillment centers have become the new face of industrial warehouse development, according to panelists at the ULI Fall Meeting in Chicago.

30 percent of all retail will be online by 2025, almost four times today.

Tenants also need to be close to an ample supply of seasonal or “surge” labor.

Preferably in right-to-work states.

E-commerce has been the fastest-growing segment of the retail market for the last four years and can be expected to be a large share of the market for the next 15 to 20 years. Fulfillment centers have become the new face of industrial warehouse development, according to panelists at the ULI Fall Meeting in Chicago.

E-commerce growth rates “are off the charts,” said logistics consultant Curtis Spencer of IMS Worldwide in Webster, Texas, who cited a National Retail Federation report that says e-commerce enjoyed growth rates that were nearly six times greater than those of traditional retail.

Amazon alone nailed a nearly 40 percent growth rate on revenue of $62 billion, Spencer said. That explains why the company is planning to build 17 distribution centers totaling 95 million square feet (8.8 million sq km) throughout the United States over the next three years. That’s in addition to the 52 centers Amazon already has.

“There’s another behemoth on the block,” the marketing supply chain consultant said, comparing Amazon to Walmart. And others like Target and Home Depot are not far behind, he added.

Spencer estimated that 30 percent of all retail will be e-commerce by 2025. Currently, it commands just 8 percent. But even so, one-third of the demand for big box space last year “was tied to e-commerce,” he said.

Spencer said some of the key elements of site selection when it comes to such facilities are their proximity to major markets, inexpensive land, adjacency to Fedex and United Parcel Service hubs and “reasonable proximity” to Interstate highways. The closer to the Fedex and UPS hubs, the better, he said, but they should be no more than five to 20 miles (32 km) away.

Tenants also need to be close to an ample supply of seasonal or “surge” labor, he said, preferably in right-to-work states.

Jinger Tapia of Ware Malcolmb described the design specifications likely to become in demanded for e-commerce fulfillment centers, a design for which her Oak Brook, Illinois-based international architectural firm won an award recently from the National Association of Industrial and Office Parks.

The cutting-edge design features a loading zone spine down the middle of the building, with a sorting zone on either side and storage on either side of that. It also has a central command center and operating vertical lifts that can handle entire trailer loads of goods.

Because the 1.95-million-square-foot building (181,161 sq m) is 84 feet (25.6 m)tall, it is classified as high-rise, Tapia said, noting that the design is “meant to be a conversation starter” when talking to clients about getting product in and out as fast and as inexpensively as possible.

For now, though, the footprint for e-commerce distribution centers is “not a lot different” from ordinary distribution centers, according to James Ford, a project executive at Clayco, a full-service turnkey real estate, architecture, design-build, and construction firm based in Chicago.

At the same time, Ford added, transportation is key–the “end-most” important factor. “Design is only incidental,” he said. “It’s all driven by convenience.”

He also said e-commerce structures, which are sometimes known as omni-channel or multi-channel fulfillment centers, require far more employees than traditional spaces and, therefore, they require four to five times more parking. And that doesn’t include the parking needed to accommodate trailers.

But over and above that, Ford said, the amount of automation required inside the buildings is the real cost driver. “Its those guts that make the difference,” he said.

]]>http://urbanland.uli.org/news/the-new-industrial-e-commerce-fullfillment-centers/feed/2How Long Will Single-Family Rentals Stay Viable?http://urbanland.uli.org/news/how-long-will-single-family-rentals-stay-viable/
http://urbanland.uli.org/news/how-long-will-single-family-rentals-stay-viable/#commentsThu, 07 Nov 2013 02:50:10 +0000http://urbanland.uli.org/?p=23683The growth in the single-family rental market has been labeled by some as a soon-to-be passing fancy -- a fad that will cease to exist once the housing market rights itself. But panelists at ULI’s Fall Meeting in Chicago say the niche business is here to stay.

The growth in the single-family rental market has been labeled by some as a soon-to-be passing fancy — a fad that will cease to exist once the housing market rights itself. But panelists at ULI’s Fall Meeting in Chicago say the niche business is here to stay.

John Burns, who heads his own 45-person marketing and research firm in Irvine, Calif., said 11 percent of the nation’s housing stock – some 14.5 million units – are either rental houses or condominiums. About 11.8 million of those are detached rental homes, he reported, 2.8 million of which were added in the last year alone.

Furthermore, Burns sees “huge” growth ahead. “Investors all over the world see safety and opportunity in the U.S. housing market,” he said. “They’d rather buy U.S. real estate than gold.”

The professional single-family market has legs, agreed Dennis Cisterna, a senior vice president in the Los Angeles office of Johnson Capital, where he is the co-head of the opportunistic finance group. “It’s been here all along, it’s just been done by Mom and Pop landlords” who own a handful of investment properties.

George Casey of Stockbridge Associated said the trend reminded him of the 1920s-‘40s, when builders sold homes to anyone who could muster a 40 percent down payment and rented the rest.

Then, he said, the Federal Housing Administration came along with its lower down payments, and Fannie Mae and Freddie Mac began to securitize loans.

According to Doug Brien, managing director of the Waypoint Real Estate Group, a player in the single-family rental market, builders are coming to him, asking Waypoint to “take down” the first 10 units of a new project to get it started or the last 10 units “at a discount” to close the project.

Brien started in the niche in 2009 as a personal investment, but soon realized he could make a business of buying and renting single-family houses. Now Waypoint has 580 employees, a portfolio of 5,000 houses, and has just merged with the Starwood mortgage real estate investment trust. The business is now known as Swaypoint, he said.

Early returns for the business gave investors and internal rate of return of 20-plus percent. And now Brien is looking for some consolidation in the business as firms like his buy out small-time landlords.

Burns, a market researcher, said one of the reasons the product makes sense for investors is that it “makes all the sense in the world for consumers.”

Some residents distrust small-time landlords who may not be as professional as larger operators, he said. Other are saddled with so much debt that they can only rent. Still others may have the wherewithal, but have lost previous homes to foreclosure and don’t want to go through that kind of traumatic experience again.

“A large portion of the recovery will be driven by people who experienced a foreclosure,” he said. “Say what you want about them; they really helped clean up this mess and are the ones driving prices higher. A huge portion of the recovery is being driven by them.”

Another panelist, MarySue Barrett, president of the Metropolitan Planning Board, an independent agency in the Chicago area, called the trend “a sleeper that has become a hot topic.”

Just now reaching what she called “the tipping point,” the single-family rental market is “not mature enough” to have a best practices manual. “We’re still searching for that,” she said.

Meanwhile, Cisterna of Johnson Capital, said financing for the segment is “still highly fragmented,” ranging from hard money lenders who can close quickly to money center banks and institutional investors with big lines of credit buy short-term windows. For now, he says, most of the money for single-family rentals is coming from community and regional banks.

What lenders find most intriguing is the exit flexibility of their investments, he also said. Owners can either keep the units, sell them to another landlord or sell them to individual buyers, “No other asset has that type of security,” he beamed. “That’s a great benefit for lenders.”

Bending the cost curve is as complex as the financing packages often needed by developers to make their projects work, the panelists said. But they said there are ways to do so.

For example, BRIDGE Housing, a large, nonprofit West Coast developer, is part of a real estate investment trust (REIT) created by a dozen affordable housing developers to acquire properties.

The advantage is that “we can close quickly,” said BRIDGE President Cynthia Parker. “Once a sponsor finds a property, it is purchased by the REIT.”

So far, according to Parker, the REIT has acquired 40 properties. And it plans to raise some $500 million in 2014 to buy even more.

Then there is the charette-like gathering that the Cornerstone Group used earlier this year to find funding for one of its Minneapolis-area projects. “We brought together all the different funders at the same time,” said the firm’s development director, Beth Pfeifer.

Pfeifer said “getting everybody at the table . . . has been extremely effective” for her small, for-profit company. “If they can’t commit, we can’t commit,” she said.

Even government has an idea or two on how to grease the wheels for affordable housing. Pennsylvania, for example, is allocating additional low-income tax credits as an incentive for innovative design, according to Holly Glauser, director of development at the Pennsylvania Housing Finance Agency.

The initial paper contains several broad recommendations. One is to promote cost-effectiveness through consolidation, simplification, and coordination, a method Glauser said her one-stop agency is advocating in Pennsylvania.

“We’re trying to be flexible in understanding the complexities of the various projects,” she said. “We need flexibility to make them work. But it’s a balancing act.”

More “like threading a needle,” agreed Pfeifer from the Cornerstone Group, who talked about one project in which there were 11 sources of funding.

According to Andrew Jakabovics, senior director of policy development and research at Enterprise, the “Bending the Cost Curve” report is based on roundtable discussions with more than 200 key stakeholders representing both weak and strong markets of various populations and geographies in a range of political and policy environments.

The research found that there are any number of “sticking points” that can raise costs, said Jakabovics, who advised developers to “find someone (in the process) who has the authority to give a little bit.”

“It’s really about the process,” he said. “There are lots of challenges, but the whole process needed to be streamlined.”

Parker of BRIDGE agreed: “Unless we try to simplify at all levels, we’re not going to get costs down.”

According to Jakabovics, three-quarters of the nation’s rental stock is in small, older projects of five to 49 units. Half is in projects of fewer than 20 units.

“The older, smaller nature of the market makes it difficult to maintain and manage affordable housing units,” he said. “They are scattered across a huge number of properties.”

]]>http://urbanland.uli.org/news/cant-hit-the-curve-keeping-costs-down-on-rental-housing/feed/0‘Micro Unit’ Developers See Big Futurehttp://urbanland.uli.org/industry-sectors/residential/micro-unit-developers-see-big-future/
http://urbanland.uli.org/industry-sectors/residential/micro-unit-developers-see-big-future/#commentsMon, 20 May 2013 17:22:00 +0000http://urbanland.uli.org/news/micro-unit-developers-see-big-future/While micro-units are coming soon to New York City, developers in Washington state and Texas are already betting on smaller units. These modern efficiencies appeal to those who value location and often don't own a car.

From left: James Potter of Kauri Investments; David Adelman ofAREA Real Estate; and Mark Riedy, executive director of Burnham-MooresCenter for Real Estate at University of San Diego. When it comes to “micro” apartments, a Bellevue, Wash.-based developer may be building them smaller than most anyone else. Kauri Investments has done six micro projects of varying sizes in and around the Seattle area. While each is somewhat different, the average unit size is just 100-150 square feet, James Potter, Kauri’s chairman, said at ULI’s annual spring meeting in San Diego.

The buildings have centralized kitchens, where occupants share pots and pans provided by the developer which also manages the properties. But they have to bring their own plates, bowls and silverware.

The units themselves have small kitchenettes – no stove, no refrigerator, just a microwave – and even smaller bathrooms with just a shower and a toilet. A sink is in the kitchen, not far away. And there rarely is any parking.

“It not about crunching down old plans,” the developer said. “You’ve got to take things out.”

If his projects harken backed to the day of SROs, dormitories, or boarding houses, that’s fine with him. After all, that’s how people were housed prior to the 1950s, he pointed out. In his discussion, Potter warned against getting into labels, or as he said it – “Don’t get caught up in words.”

Potter said his units are about his customers: what they want balanced against what they can afford. Kauri’s properties tend to attract an eclectic mix of tenants, from people who can’t afford much to executives who want a small place near their offices where they stay a few nights a week.

While they might work in the suburbs, he says they’ve been successful to date largely because they are in urban, walkable locations within easy reach of transportation and retail. “Our amenities are the community we live in,” the developer said. David Adelman of AREA Real Estate in San Antonio is building more conventional apartments. But he, too, is moving down the square footage ladder.

The 247 units in his first project, a downtown San Antonio mid-rise, averaged 726 square feet. But now he’s looking at a 113-unit project in which the units will average 588 feet, but 10 will be only 380.

“I’m looking at lifestyle trends and I’m working my way down,” said Adelman, a self-proclaimed “outsider” who started his real estate career in the industrial sector and had no preconceived notion of what apartments should be.

Unlike Kauri’s properties, AREA’s are amenity laden. One has two pools which are always full, several courtyards suitable for cooking and the like and dog parks that have become an incredible social feature. Food trucks several times a week are an additional feature.

“If we’ve struggled with anything, it’s how to manage these amenities,” said Adelman, “We’re not just pet-friendly, we’re super pet-friendly.” The 307-unit property is home to 80 pets, according to the developer.

Inside, the units are fairly stark. Tenants get a Pullman-style kitchen with all the features but little else. The idea, said Adelman, is to allow residents to use and decorate their limited space as they see fit. “People will figure out how they want to use their space,” he said.

AREA’s tenants are mostly male, but more and more women are signing up. They’re largely single and somewhat older than the 20 to 30-year olds Adelman originally thought he would attract.

AREA’s properties offer parking, though Adelman says he has to fight tooth and nail to keep parking requirements down. It’s not an easy issue, Potter agreed, because people fear new residents will be more competition for an already limited number of spaces.

But, the Seattle developer points out, only 20 percent of his tenants even own cars, and his company helps those occupants find places to store their automobiles elsewhere.

]]>http://urbanland.uli.org/industry-sectors/residential/micro-unit-developers-see-big-future/feed/1Barbells of the Housing Market: Appealing to Gen Y and Boomershttp://urbanland.uli.org/development-business/barbells-of-the-housing-market-appealing-to-gen-y-and-boomers/
http://urbanland.uli.org/development-business/barbells-of-the-housing-market-appealing-to-gen-y-and-boomers/#commentsThu, 16 May 2013 20:29:00 +0000http://urbanland.uli.org/news/barbells-of-the-housing-market-appealing-to-gen-y-and-boomers/While the baby boomers and generation Y are a big piece of the puzzle, neither generation is monolithic, said panelists at the ULI Spring Meeting. Appealing to all generations may be the safest path for residential and retail developers.

From left to right: Robert Lang, Maureen McAvey, Jamie Gutfreund, Jeff Kreshek, and Alan Mark at the ULI Spring Meeting in San Diego.

There’s no question that baby boomers and genYers (also called millenials) are dominant drivers of real estate demand. Together, the two cohorts account for well over half the U.S. population. But that doesn’t mean each one fits into its own separate bucket, or that their preferences are all the same, according to panelists on “The Barbells of the Market” at ULI’s Spring Meeting in San Diego.

Robert Lang, a professor at UNLV and co-director of Brookings Mountain West, said that just because a large segment of boomers are entering their retirement years doesn’t mean they all will or can retire. The early years of the group of people born between 1946 and 1964 were not good economically, the demographer pointed out, so many of the early boomers are not ready to leave the workforce.

Similarly, while generation Y represent the largest population segment ever, members of this cohort are hardly all the same, Lang added. Part of the reason for the segment’s size is due to immigration, he noted, so while they are all seeking employment, they are not all one population.

“There’s some skepticism with cohort separation among many demographers,” the academic told the session. “There’s no certainty that the demographics in and of themselves is self-predictive.”

Jamie Gutfreund, chief strategy officer at the Intelligence Group, a Los Angeles consumer research agency, said companies which understand the “why” behind what genYers purchase – “who they are as people and how come they believe what they do” – are the ones that are most successful in reaching them.

As boomers fade into the sunset, understanding millennials becomes even more important. Some 80 million strong, the cohort between 18 and 34 is spending $200 billion a year now with the potential to spend double that by 2020, Gutfreund pointed out.

The research strategist described genYers as a “highly oriented group” with “an urban spirit.”

“They have a different approach to living,” she said. “They’re highly entrepreneurial. They’d rather work for themselves then have a job. Many think they can be the next Mark Zuckerburg.”

She also said millennials don’t want to be sold. Rather, “they want to be collaborated with. Their social DNA is ‘I am what I share.’ They rely on openness.”

Jeff Kreshek, vice president of West Coast leasing for Federal Realty, the Washington, D.C.-based real estate investment trust, said it is difficult to plan any kind of development for consumers who have no brand loyalty and move on quickly to the next best thing.

But the key, he said, is giving people an experience they cannot get when the buy something on-line or get elsewhere.
“Shoot down the middle – the project has to be comfortable for all generations – but go heavy, heavy, heavy on the experience,” advised Kreshek, whose firm built the award-winning Cannery Row project in Monterrey, Calif., and Bethesda Row in suburban Maryland.

“Retail, restaurants and place-making,” he said. “You want to create a relationship, with the consumer and become part of their lives.”

Admitting to using his own teenagers as a sounding board, he also suggested talking directly to genYers about what they’re after. “They talk a lot,” he said. “They’ll tell you what they like.”

Alan Mark, chief executive officer of The Mark Co., a San Francisco-based builder of apartments in California, Las Vegas and Denver, said he thinks of the condominiums he builds as his buyers’ bedroom and the properties as their living rooms.

Whereas boomers tend to want large unit with views and genYers want smaller, more affordable units, they all want amenities, plenty of amenities, from guest suites and high end finishes for the boomers to doggie parks and smart technology for the millennials.

Events also are a big draw. But when it comes to leaving their boomer parents behind, genYers still don’t, Mark said. One out of every two still goes house hunting with their folks, he said, and one of every three use their parents’ money as part of their downpayment.

]]>http://urbanland.uli.org/development-business/barbells-of-the-housing-market-appealing-to-gen-y-and-boomers/feed/0ULI Forecast Calls for Continued Economic Improvementhttp://urbanland.uli.org/economy-markets-trends/uli-forecast-calls-for-continued-economic-improvement/
http://urbanland.uli.org/economy-markets-trends/uli-forecast-calls-for-continued-economic-improvement/#commentsWed, 10 Apr 2013 17:19:00 +0000http://urbanland.uli.org/news/uli-forecast-calls-for-continued-economic-improvement/Significant improvement can be expected in both the commercial and residential real estate sectors this year and through 2015, according to ULI's semiannual forecast. Respondents expect transaction volume in commercial real estate to rise from $290 billion last year to $310 billion this year, $340 billion in 2014, and $360 billion in 2015.

]]>Significant improvement can be expected in both the commercial and residential real estate sectors this year and through 2015, according to a semiannual forecast from the Urban Land Institute.

The outlook, which represents the median consensus from a survey of 38 of the country’s top real estate economists and analysts, is “very optimistic,” said Howard Roth, global and Americas director of real estate at Ernst & Young—“considerably more so” than the previous ULI poll conducted in September, he noted.

Participants expect transaction volume in commercial real estate to rise steadily, from $290 billion last year to $310 billion this year, $340 billion in 2014, and $360 billion in 2015. Just four years ago, at the bottom of the recession, only $60 billion in commercial properties changed hands.

In what Dean Schwanke, ULI senior vice president, called another good sign, the issuance of commercial mortgage–backed securities (CMBS) is predicted to leap nearly 50 percent this year alone, to $70 billion from $48 billion in 2012. CMBS issuances, a key source of funding for income-producing properties, are expected to hit $80 billion next year and $100 billion the year after that. In 2009, only $3 billion in CMBS was issued.

Participants also are looking for strong growth in the housing sector through the remainder of this year and the next two. “This is where we see some of the most dramatic changes and lots of optimism,” Schwanke said during an hour-long press briefing.

The expectation is for 700,000 single-family housing starts this year, 900,000 in 2014, and 1.013 million in 2015. In comparison, just 535,000 houses were started last year. Also, prices are expected to rise 6 percent this year, 5.3 percent in 2014, and 5 percent in 2015.

These projections are based on a generally favorable outlook for the economy, with steady improvement anticipated in both growth and employment.

“When it comes to the economy, we see a lot of underlying strength,” said Suzanne Mulvee, director of retail research in CoStar Group’s property and portfolio research divisionin Boston and one of the survey participants.

“The economy really wants to go faster,” said Kevin Thorpe, chief economist at Cassidy Turley, a commercial real estate company in Washington, D.C. “Household balance sheets are very clean and ready to go forward,” added Craig Thomas, vice president of market research at AvalonBay Communities, a major apartment developer based in Arlington, Virginia.

Thorpe said about the only thing slowing growth is what he termed the federal government’s “fiscal instability.” Otherwise, he said, “we’re starting to morph into a really strong economy.”

According to the forecast, real gross domestic product can be expected to rise 2 percent this year, 3 percent next year, and 3.1 percent in 2015.

The unemployment rate is anticipated to fall to 7.5 percent by year’s end, slipping to 7 percent in 2014 and 6.5 percent in 2015. At the same time, the number of jobs created is expected to rise to 2.1 million this year, 2.4 million next year, and 2.6 million in 2015.

The participants do anticipate an increase in inflation and interest rates as the economy continues to improve.

But they expect total returns generated by equity real estate investment trusts to slide to less than half the 28 percent level reached in 2009–2010. As tracked by the National Association of Real Estate Investment Trusts, returns are expected to be 12 percent in 2013, 10 percent in 2014, and 8 percent in 2015. ULI’s Schwanke said the decline is only back “to historical norms.”

Total annual returns from institutional-quality direct real estate investments for all income properties combined are forecast to be 9.5 percent in 2013, 9 percent in 2014, and 8 percent in 2015. The downward trend began in 2012, but returns remain in the range of long-term historical averages.

“The survey suggests that the commercial real estate industry will be on solid footing for the next three years,” said Schwanke.

By property type, participants predict the following:

Apartments: Vacancy rates will hold at 5 percent this year, then start to edge up to 5.2 percent through 2015. As more supply comes to market, rental rates will fall steadily from 4.1 percent last year to 3.8 percent this year, 3 percent in 2014, and 2.8 percent in 2015.
“We’ve been running at peak for the last couple of years,” said Thomas of AvalonBay. “Now we’re waiting for everybody else to join the party.”

Office: The “bellwether sector is still at a high point, but it is coming down,” Schwanke said.
Vacancy rates are expected to fall to 14.8 percent in 2013, 14.1 percent in 2012, and 13.6 percent in 2015. Rental rates are forecast to fall by 3.5 percent this year, then rise by 4 percent in both 2014 and 2015.

Industrial/warehouse: Vacancy rates will continue to decline, falling to 12.2 percent by year’s end, 11.7 percent in 2014, and 11.4 percent by year-end 2015. Rental rates will rise, with an increase of 2 percent expected this year and 3 percent in both 2014 and 2015.

Hotel: Hotel occupancy rates, according to Smith Travel Research, have improved from 54.6% in 2009 to 61.4% in 2012, and the ULI Forecast projects that occupancy rates will increase to 62.4% in 2013, 63.1% by 2014, and 63.6% by 2015.
Hotel revenue per available room (RevPAR) has also grown substantially, with 8.2% growth in 2011 and 6.8% in 2012. Growth is expected to remain strong, but will grow at decelerating rate, with expected RevPAR growth of 5.5% in 2013, 5.0% in 2014, and 5.0% in 2015.

Retail: Availability rates are forecast to dip to 12.5 percent this year, then to 12.2 percent in 2014 and 11.9 percent in 2015. Rental rates are projected to rise by 1 percent in 2013 and by 2 percent in 2014 and 2015.
But Mulvee of CoStar said the retail sector is “still going through a massive recession.” She noted that 50 million square feet of space has been vacated in malls nationwide as retailers consolidate and shut down, and 50 million square feet of additional space is likely to be chopped away this year and next. “It’s going to be a rough couple of years,” she said.
“Retail is the toughest sector to draw a clean trend on,” said economist Thorpe. “Downtown is looking good, but further from the core is where it gets iffy. Also, high- and low-end retail is doing very well, but the middle is very soft.”

This is the third in a series of polls by ULI to gauge the direction of the real estate industry, and the first cosponsored by Ernst & Young. The next installment is scheduled to be released in October.